Case Digest Gamboa Vs Teves
Case Digest Gamboa Vs Teves
Case Digest Gamboa Vs Teves
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G.R. No. 176579, June 28, 2011
CARPIO, J.:
I.
THE FACTS
This is a petition to nullify the sale of shares of stock of Philippine
Telecommunications Investment Corporation (PTIC) by the government of
the Republic of the Philippines, acting through the Inter-Agency Privatization
Council (IPC), to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of
First Pacific Company Limited (First Pacific), a Hong Kong-based investment
management and holding company and a shareholder of the Philippine Long
Distance Telephone Company (PLDT).
The petitioner questioned the sale on the ground that it also involved
an indirect sale of 12 million shares (or about 6.3 percent of the outstanding
common shares) of PLDT owned by PTIC to First Pacific. With the this sale,
First Pacifics common shareholdings in PLDT increased from 30.7 percent
to 37 percent, thereby increasing the total common shareholdings of
foreigners in PLDT to about 81.47%. This, according to the petitioner,
violates Section 11, Article XII of the 1987 Philippine Constitution which limits
foreign ownership of the capital of a public utility to not more than 40%, thus:
Section 11. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted except
to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines, at least sixty per centum of
whose capital is owned by such citizens; nor shall such franchise,
certificate, or authorization be exclusive in character or for a longer period
than fifty years. Neither shall any such franchise or right be granted except
under the condition that it shall be subject to amendment, alteration, or
repeal by the Congress when the common good so requires. The State shall
encourage equity participation in public utilities by the general public. The
participation of foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in its capital, and all
the executive and managing officers of such corporation or association must
be citizens of the Philippines. (Emphasis supplied)
II.
THE ISSUE
Does the term capital in Section 11, Article XII of the Constitution
refer to the total common shares only, or to the total outstanding capital stock
(combined total of common and non-voting preferred shares) of PLDT, a
public utility?
(6) The SEC rules, opinions and jurisprudence use the control test, which
requires that the nationality of a corporation is determined by the total
outstanding capital stock irrespective of the number of shares, and capital
denotes the total shares subscribed and paid irrespective of their
nomenclature.
(7) Lastly, the last sentence of Sec. 11, Art. XII limits the participation of the
foreign investors in the governing body to their proportionate share in the
capital of the corporation.
ABAD (Dissenting Opinion)
(1)
Authority to define and interpret the meaning of capital in Sec. 11,
Art. XII belongs to Congress as part of its policy making powers, as the
power to authorize and control a public utility is a prerogative of Congress.
Sec. 11, Art. XII is no self-executing and requires Congressional action to
clarify its meaning. FIA is restricted to certain areas of investment and
should not be construed to clarify the meaning of capital under the
constitutional provision as they are rules which apply to future investors.
(2)
Capital refers to the entirety of the corporations outstanding voting
stock as, first, the 40 percent limit (if held only to preferred shareholders)
would render meaningless the fourth sentence which limits foreign
participation in the governing body of public utilities, and, second, amicus
curiae Dr. Villegas, Chairman of the Committee of National Economy, said
that the term capital did not distinguish among the classes of shares. In
both economic and business terms, capital always meant the entire shares of
stock. Further, Philippine policy on foreign ownership already discourages
foreign investments and to impose additional restrictions would aggravate
economic growth.
(3)
Sec. 11, Article XII already provides 3 limitations on foreign
participation in public utilities and the Court need not add more by restricting
the definition of capital.
Section 10, Article XII of the Philippine Constitution provides that the
Congress must reserve certain areas of investment to Filipinos or to
corporations or associations of which at least 60 percent of capital is owned
by Filipinos. Section 3 of the Foreign Investments Act of 1991 defines a
Philippine national as a citizen of the Philippines or a domestic partnership
given a period of one year from the effectivity of the issuance within which to
comply with the said ownership requirement.
Certainly, the Securities and Exchange Commission issuance upholds the
protection of vital industries and certain investment areas from foreign
control. It is effectively backing Article XII of the Constitution, the Foreign
Investment Act definition of what constitutes a Philippine national, and the
ruling of the Supreme Court in Heirs of Gamboa case to reserve certain
areas of investment to Filipinos. It adheres to the constitutional directive
without compromising the actual and potential foreign investments. While the
Securities and Exchange Commission issuance is providing a guiding
principle in support of the conservative approach of the government with
regard to development of the national economy, it is likewise recognizing the
important role of the foreign investors in the effort to improve the economic
standing of the Philippines.
[Constitutional Law, Corporation]
The term capital does not refer to both preferred and common stocks
treated as the same class of shares regardless of differences in voting rights
and privileges.
Consistent with the constitutional mandate that the State shall develop a
self-reliant and independent national economy effectively controlled by
Filipinos, the term "capital" means the outstanding capital stock entitled to
vote (voting stock), coupled with beneficial ownership, both of which results
to "effective control."
"Mere legal title is insufficient to meet the 60 percent Filipino owned capital
required in the Constitution for certain industries. Full beneficial ownership of
60 percent of the outstanding capital stock, coupled with 60 percent of the
voting rights, is required." In this case, such twin requirements must apply
uniformly and across the board to all classes of shares comprising the
capital. Thus, "the 60-40 ownership requirement in favor of Filipino citizens
must apply separately to each class of shares, whether common, preferred
non-voting, preferred voting or any other class of shares." This guarantees
that the controlling interest in public utilities always lies in the hands of
Filipino citizens.